Practitioners will be aware of the requirement to obtain CGT clearance certificates in the case of a disposal of certain assets where the consideration exceeds €500,000.
The assets involved are:
i) Land and building in Ireland,
ii) Exploration or exploitation rights located in Ireland,
iii) Goodwill of a trade carried on in Ireland, and
iv) Shares of a company that derives its value or the greater part of its value from assets at (i) and (ii) above (specified assets).
In normal situations, the clearance certificate should be obtained by applying to the vendor’s tax office (the application form can be signed by the vendor or its agent) at least one week before the intended closing date. A copy of the contract for disposal should accompany the application.
The clearance certificate will be available where:
a) The vendor is resident in the State,
b) There is no capital gains tax due on the disposal, or
c) The capital gains tax due has been paid.
Certain situations can arise that do not fall readily within the above procedures. The Law Society has agreed certain procedures with the Revenue Commissioners, through the TALC meetings, which are set out below.
1. Vendor is a builder/developer and is disposing of a newly constructed house
Production of any of the following by the vendor’s solicitor will suffice instead of a CG 50A:
i) A copy current notification of determination issued to the vendor under section 531I TCA 1997 indicating a 0% rate,
ii) A copy current tax clearance certificate issued to the vendor under section 1094 or 1095 of the TCA 1997, or
iii) A copy current tax clearance certificate issued to the vendor specifically for the purposes of section 980 TCA 1997.
2. Purchase in trust
Circumstances can arise where a purchaser does not want to reveal its identity to a vendor, or where this may not have been finally decided, say in the context of a group of companies. Revenue has agreed that, notwithstanding note 7 of the existing Form CG50, the inclusion of ‘in trust’ details for the purchase on the application form will not prevent the issue of a clearance certificate.
The purchaser’s solicitor must, however, furnish the name and address of the purchaser to the Revenue Office that issued the certificate immediately on the closing of the sale.
3. Simultaneous signing and closing of contracts
This can occur in certain situations and, in particular, can involve the contract being amended right up to its execution. Difficulties can arise, therefore, where a contract is amended after the CGT clearance cert has issued.
The Revenue has agreed that applications should be processed on the basis of the unsigned contract that accompanies the Form CG50. Where a clearance certificate issues in these circumstances, the purchaser can rely on the certificate; however, the applicant (or solicitor for the applicant) should submit a copy of the actual signed contract immediately on the closing of the sale. A purchaser can satisfy this requirement themselves by sending a copy of the signed contract to the Revenue, if they are in any doubt that this will be done post closing.
4. Disposals where there is no contract
This can occur in certain situations, for example, on the redemption of shares. If not already provided, the applicant should be asked for a note confirming the reasons the application is not accompanied by a contract, and this should be provided to Revenue with the application. The absence of a contract should not, in itself, prevent the issue of a clearance certificate in such situations.
5. Consideration payable by instalments
While it is recognised that it is difficult to provide definitive guidance on this area, the general position is that clearance certificates should issue at the outset, for the maximum amount of the consideration that is provided for in the contract, notwithstanding that the initial payment might not exceed the threshold.
If there are doubts as to the quantum of the final amount of the consideration – for example, where there is contingent consideration – the applicant should be asked to quantify the final amount to the best of their ability, and the application should be considered on that basis. Any quantification for this purpose will not affect the ultimate liability of the parties to tax, including in particular to CGT.
6. Disposals where reliefs apply (for example, sections 615/617 TCA apply or where PPR relief applies)
Notwithstanding the fact that there may be no capital gains tax payable due to reliefs available under the legislation, CGT certificates will still be required as normal where the value of consideration paid (or deemed to have been paid in accordance with Revenue tax briefing no 13 of December 2010) is in excess of the threshold (currently €500,000), except where legislation specifically deems no disposal to have occurred.
7. Disposals by partners in a partnership
Where the total consideration on disposal of a partnership asset exceeds €500,000, one application is made on behalf of the partnership. This is usually to the tax office of the first-named partner. The application should list the names of the partners and their PPS numbers. This one certificate suffices for presentation to the purchaser to enable him to pay gross, even if the payment is divided, with amounts going to individual partners.
8. Disposals by co-ownerships
On the disposal of an asset by a co-ownership, each co-owner only needs a certificate to the extent that his share of the consideration is greater than €500,000 (however, please see paragraph 14 below in relation to a receiver appointed over a co-owned asset). A note should accompany a CG50 application, explaining that a certificate is being sought in respect of the applicant’s share (greater in consideration value than €500,000) of a larger asset and that a co-ownership rather than a partnership is involved.
9. Cross-border mergers
The need to obtain a certificate will depend on the form of the merger agreement – for example, with a merger by absorption, it may be that a certificate would not be required, whereas with a merger by acquisition and issue of shares, one would look to the value of the shares.
10. Consideration in kind
Where a specified asset is acquired and the consideration given for the disposal is in such a form that tax cannot be withheld, special provisions apply. Unless the vendor provides a CGT clearance certificate, the purchaser is required to:
i) Make a return of information to the Revenue regarding the transaction within seven days of the acquisition,
ii) Pay an amount of CGT equal to 15% of the market value of the consideration.
11. Non-resident vendors
Solicitors are advised that the above clearances are separate to the procedures that apply when acting for non-resident vendors. A procedure has been agreed between the Law Society and the Revenue where, after a disposal has been notified to Revenue by a solicitor and he/she obtains a letter of ‘no audit’, then the Revenue will not subsequently pursue the solicitor for any unpaid taxes of the vendor. This procedure should still be followed, whether or not a CGT clearance certificate is required.
12. Charities
On the disposal of a specified asset by a charity, the charity should be able to apply for a certificate on the basis that it is exempt from capital gains tax. On a disposal of a specified asset to a charity, there should be no capital gains tax (as the disposal will be deemed to have taken place at no gain no loss) and the disponer should be able to apply for a certificate on this basis.
13. Liquidators
Where a company is in liquidation, the liquidator should apply for a certificate on the disposal of specified assets to third parties where the consideration exceeds €500,000. The application should be made to the tax district dealing with the company, quoting the tax reference number of the company. Where the assets (being specified assets) of the company in liquidation are being distributed in specie to the shareholders of the company:
i) The liquidator should apply for a certificate if the value of the shareholder rights being given up in return for the specified assets exceeds €500,000, and
ii) Each shareholder should separately apply for a certificate in respect of the disposal of his/her shares where the value of the specified assets being distributed to him/her exceeds €500,000.
14. Receivers/Official Assignees in bankruptcy/mortgagees in possession
The Revenue Commissioners are to issue guidance on receiverships/official assignees in bankruptcy/mortgagees in possession that will, among other things, address CG50 requirements in these circumstances.